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Cost-Benefit Case Lags Funding For NextGen Equipage

Though more than $1 billion in government-backed loans for FAA Next Generation Air Transportation System (NextGen) avionics could soon be available, airlines remain cautious about investing in the technologies even as the first milestone—equipping with automatic dependent surveillance-broadcast (ADS-B)—is rapidly approaching.

Per FAA mandate, airlines must have ADS-B “out” installed as a surveillance source by Jan. 1, 2020, to gain unfettered access to the FAA's air traffic management system. To meet that date, carriers say they must begin planning and investing now to fit the upgrades in with usual maintenance cycles.

At issue are uncertainties in the some of the accuracy and timing requirements for ADS-B “out” and, potentially more damning, a lack of clarity on what airlines will gain by investing in the technology.

“There are no clear financial economic benefits for an airplane for ADS-B 'out,'” says Kent Horton, director of engineering for Southwest Airlines. “There are some illusions of better air traffic control or flight times.”

Questions aside, the NextGen equipage fund, set up by NEXA Capital Partners, is moving forward with loan talks. The company's managing director and CEO, Michael Dyment, says he is in advanced talks with three airlines—including one very large U.S. carrier—and expects to announce at least one customer by mid-year.

The upgrades are required to meet the FAA's goal of transitioning to a more efficient system over the next decade, but they have been a tough sell for operators. Speaking at Aviation Week's MRO Americas conference on April 16, Dyment said NEXA's analysis shows that operators will start to reap real benefits from satellite-based air traffic management when 60-65% of the fleet is upgraded. Right now, the figure is not anywhere near that.

This puts early adopters in a tough position, a lesson Southwest learned the hard way when it invested heavily in Required Navigation Performance (RNP) to use more efficient satellite-based approaches at many airports, only to find its aircraft stuck in lines of unequipped planes that could not take advantage of the new procedures.

“We have already invested in NextGen for RNP operations, but the procedure side of that has been very slow in coming,” says Horton. “It's starting to get traction now, but we've been equipped for several years.”

Southwest financed its own upgrades, but most other airlines will likely not be in such an enviable position. “We have really good credit compared to the other operators,” Horton says. “There's not a lot of advantage of going to the FAA for funds. We just need to make a business case for the investments.”

Dyment estimates that the cost of a NextGen package for a Boeing 737-800, including labor and avionics for ADS-B “in” and “out,” RNP 0.3, and pilot/controller data communications is about $550,000. A winglet package for the same aircraft costs $885,000, he says.

NEXA says the investment will pay off in less than a year, provided about 75% of the fleet is similarly equipped. Horton says 6,000-7,000 aircraft will require NextGen avionics modifications.

Winglets are a less controversial investment, and operators reap instant benefits from them, even though the return-on-investment cycle is longer. By contrast, a NextGen package will not do much good if you are the only one so equipped—or if the FAA does not follow through on its end of the infrastructure development bargain.

Dyment says the public-private partnership fund does not just provide cheap, government-backed loans, and NEXA also is working with the FAA to ensure specific NextGen targets can be met as part of operator commitments. For instance, a given carrier may commit to upgrade if NextGen capabilities are rolled out at its main hubs by a certain date. If the FAA fails to deliver, the carrier could defer payments until the agency meets its commitment.

Dyment says the fund, partially backed by ITT Exelis, is ready to cover $1.3-1.4 billion in retrofits as industry moves to meet deadlines for leveraging satellite-based air traffic management systems being deployed. A second fund for general aviation aircraft is prepared to back about $550 million in upgrades, and a third fund is being created for export aircraft.

Horton says the “biggest conundrum” about ADS-B

is how accurate the GPS navigation source will have to be to gain the best routes. The specification remains somewhat of a moving target, though the FAA is expected to release a draft Advisory Circular soon that will clarify what is needed.

Without a firm commitment on the specifications, however, airlines are fearful of hidden costs down the road.

“The expense of guessing wrong is what we must avoid,” says Joe White, managing director of engineering and maintenance at Airlines For America. “We need accurate forecasts of these elements that affect architecture. We can't afford a miscalculation. In particular, we can't afford recurring retrofits as things change.”

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